Second sight

Earlier this year, I bought something from a chap in Frankfurt. The transaction was very efficient but, more importantly, it would never have happened at all without the internet in general and eBay in particular. Score one for free trade: I got something I wanted and so did he. A willing buyer and a willing seller were matched by an electronic marketplace that didn't exist a couple of years ago. We were better off and so, by an imperceptibly small amount, was the European economy.

Using the web and e-mail, I searched on eBay, found what I wanted, bid for it and won the auction, agreed the shipping method and postage costs. The total came to around € 40. Then came the question of payment. A bank transfer seemed rather expensive. A cheque wouldn't work, since I have only sterling accounts and he had a Deutschmark account.Free and fast (in fact instant) person-to-person small payment solutions widely used in the US - Paypal, for example, or Billpoint - don't (yet) work in Europe. PhonePaid, however, a European rival to PayPal, is launching a similar emailing system for GSM phones in Europe this week.

The European banks' principal thrust in this area, the smart card-based electronic purse was useless here. Being in the UK, I don't have one (Visa recently shut down its only scheme in Leeds, Mondex in Edinburgh closed earlier this year, and so on).

Being in Germany, my counterparty did have one (as do more than 50 million of his fellow citizens) but he couldn't use it on the internet. Even if he had been in possession of a smart card reader connected to his PC, his Geldkarte would not have worked with my British bank account so it would have been pointless (and the situation would have been no different if my bank account was in euros and his Geldkarte could store euros, which it cannot).

Banks have, in fact, probably done more harm than good with their botched launch of e-cash. The threat of non-bank competition for the retail payments franchise, and enthusiasm for hi-tech, led them to ignore poor feedback from pilot schemes. Instead of re-focusing on areas where the market wanted solutions (eg, the internet, mobile phones and so on) they kept pushing e-cash where it wasn't wanted: shops.

Eventually, I emailed my German seller and asked him for his preferred payment method: he said cash! So in the year 2000, to execute a transaction between two of the most advanced economies in the world, on the dawn of the single currency, I put two $20 interest-free loans to Uncle Sam in an envelope and handed it over to the Royal Mail. A few days later my goods arrived.

Now this strikes me as odd: one of the most computerised, electronic, global businesses imaginable (ie, banking) is incapable of supporting intra-European cross-border trade and causes trading partners to use US banknotes and the postal service.

The European Central Bank (ECB) is now getting involved, and its work may yet bear fruit. But this problem needs addressing outside of the banking sector. The US wants action in this area as well - the Clinton administration has called for a new "standard-based mechanism" to handle retail payments on the net-but in the US market non-banks have been quick to move in with new payment products: not just email payment by PayPal, but phone billing by eCharge, ISP billing by iPin, pre-paid schemes (like mobile phone vouchers) such as the American Express Internet Shopping Card and so on.

I am not arguing that we need more regulation or legislation in Europe: far from it. But we do need to work hard at stimulating competition by removing regulatory barriers to non-bank entrants in the retail payments business.

Just to pick one example, mobile operators are an obvious potential provider of payment services, not least because the world of m-commerce is as hampered by the lack of appropriate payment technology as much as the internet is. The idea of the mobile phone as some kind of electronic wallet is, in any case, already widespread.

Until someone in the UK can email € 40 to Frankfurt as easily as someone in San Francisco can to someone in New York (ie, very easily), the European e-economy cannot grow like it does in the US. Who cares whether it is NatWest, Vodafone or Canal+ that provides the service?